Current Tax Rates

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As a permanent employee, your deductions are made before the money reaches your bank account. As a contractor, things are slightly different; it becomes your responsibility to take care of things.

With tax rates and allowances constantly changing, it can soon become confusing. We have taken the most common taxes and have looked at these in more detail.

Income Tax

Income Tax is a tax which is paid on the income you receive.

In the UK, you don’t need to pay tax on any earnings under £12,500; this is known as your personal allowance. Once you start earning over this amount, you will begin to pay tax.

The amount you pay depends on how much you earn on a yearly basis, and can be found in the table.

Your personal allowance can begin to decrease when you earn over £100,000. Your personal allowance will decrease by £1 for every £2 over £100,000.

Yearly Earnings

Rate

Less than £12,500

0%

£12,501 to £50,000

 20%

£50,001 to £150,000

40%

More than £150,000

45%

National Insurance

National Insurance contributions allow you to qualify for a range of benefits, plus the State Pension.

You will pay National Insurance if you’re over the age of 16, and either:

  • Employed and earning over £166 per week (£664 per month).
  • Self-employed and making a profit of at least £6,365 per year.

However, if you earn between £118 and £166 per week, your contributions will be treated as having been paid. This protects your National Insurance record.

Any questions?

For guidance and advice regarding tax and your allowances, get in touch with our experts.

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VAT registration

If you own a business, it is your responsibility to register it for VAT with HM Revenue and Customs (HMRC), if its VAT taxable turnover exceeds £85,000.

VAT taxable turnover consists of the total value of everything you sell, that is not exempt from VAT.

If your taxable turnover is under £85,000, you can register voluntarily.

Rates of pay

If you are on an hourly wage, then the amount you earn depends on your age, and whether you are an apprentice or not.

To receive the rates in the table, you must be at least:

  • School leaving age, to receive the National Minimum Wage.
  • Aged 25 or over to receive the National Living Wage. The National Minimum Wage will apply to workers aged 24 and under.

Apprentices are entitled to the apprentice rate until they have reached the following qualifying criteria:

  • Are aged 19 or over.
  • Have completed the first year of their apprenticeship.

Band

Rate (2019-20)

Over 25

£8.21

21 to 24

 £7.70

18 to 20

£6.15

Under 18

£4.35

Apprentice

£3.90

ISA allowances

An Individual Savings Account (ISA) is a savings or investment account which you don’t pay tax on.

You can save up to a maximum of £20,000 per year (2019-20), which can be split across the following:

  • Cash ISA
  • Help to Buy ISA (will close to new applicants on 30 November 2019)
  • Stocks and Shares ISA
  • Lifetime ISA (maximum of £4,000 per year)

Any unused allowance does not roll over to the next tax year.

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Corporation Tax

In the UK, limited companies must pay Corporation Tax on their profits. It’s similar to Income Tax for individuals, the main difference being the absence of a personal allowance.

As soon as your business begins to make a profit, it must pay a rate of 19% (2019-20) on these profits.

Most limited companies register for Corporation Tax during their registration with Companies House. It is crucial to register within three months of trading, as you could receive a penalty if you register late.

Your essential guide to contracting

Find out how to maximise your take-home pay and become a successful contractor in our free guide. Also covered in our guide is:

  • Getting started – discover which business structure is best for you and how to get started.
  • Your tax and financial obligations – all you need to know about your paying tax, filing accounts and what costs you offset.
  • Making your business a success – learn how to grow your business, how to market yourself and to forecast for the future.

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